The wind-down of law firm Ruden McClosky will entail a complicated, multi-step process over a period of months, including a bankruptcy court auction and possible objections by former shareholders.

Ruden filed for Chapter 11 bankruptcy on Nov. 1, but the case is more like a liquidation than a reorganization.

U.S. Bankruptcy Judge Raymond Ray authorized Ruden to proceed with plans to hold an auction of its assets on Nov. 27, but made it clear he would scrutinize the sale and any objections raised.

The case hinges on a set of agreements among lender Wells Fargo, Ruden McClosky and stalking-horse bidder Greenspoon Marder.

Many of Ruden’s current shareholders have given Greenspoon Marder a verbal pledge to join that firm after it pays $7.6 million for Ruden’s assets. In turn, Wells Fargo will provide debtor-in-possession financing for Ruden. Also at issue is a set of personal guarantees signed by current shareholders, who hope to be absolved of them by supporting the overall transition to Greenspoon Marder.

Paul Singerman, Ruden’s bankruptcy counsel, said the Ruden case is unique: “We’ve looked at a lot of law firm bankruptcies. I don’t believe there has been a case like this where a debtor seeks to have a sale of assets as a going concern to preserve value,” Singerman told the judge at a Nov. 2 hearing. “We’ve got 52 years of firm history and clients on the line …. All we want is approval to go forward with the process.”

Ruden plan’s uniqueness

Law firms don’t typically end in bankruptcy. The last large South Florida firm to declare bankruptcy was Rothstein Rosenfeldt Adler, after Chairman Scott Rothstein fled the country while his $1.2 billion Ponzi scheme was discovered. No one has alleged any fraud in the Ruden case.

Another large firm that recently imploded was Miami-based Adorno & Yoss, which was simply Yoss LLP in its final days. Several attorneys from that firm joined other local firms in groups, but a bankruptcy was never filed.

Accounting firm Berenfeld Spritzer Shechter & Sheer also disappeared after most of its professionals agreed to join Cherry Bekaert & Holland. But Berenfeld simply filed dissolution papers with the state after an insurance settlement with the trustee overseeing the RRA bankruptcy.

Possible challenges ahead

Larry Gordich, the attorney representing 37 ex-shareholders of Ruden McClosky, said Nov. 2 he would seek to have a trustee appointed over the firm while it’s in Chapter 11.

“I don’t know another way to say this,” Gordich said during the hearing. “But what we’re talking about here is the exact same people that have managed to take this 52-year-old firm into bankruptcy are the ones who will oversee the firm’s transition.”

“If any party thinks they’re going to prove fraud or gross incompetence, let them bring it on,” Singerman shot back.

“Those are not the only reasons counsel knows of for appointment of a trustee,” Gordich replied, later telling Singerman: “We just want to know what’s going on.”

Some documents in the Ruden bankruptcy were filed under seal, including the salaries of top managers, such as co-managing director Carl Schuster and managing partner Michael Krul.

Other firms can still bid on Ruden’s assets, but Greenspoon believes it is in the driver’s seat. However, at least some of Ruden’s attorneys have already balked at joining Greenspoon. L. David Shear, a shareholder in the firm’s Tampa office, said the 10 attorneys there were seeking other options.

“We are finalizing discussions with a pre-eminent law firm, and anticipate making an announcement in the immediate future,” he said.

GrayRobinson, an Orlando-based firm with an office in Tampa, will be taking over the Ruden lease in Tampa, but neither Shear nor a GrayRobinson spokeswoman would say whether GrayRobinson is talking to Ruden attorneys there about acquisitions.

“I’ve met with almost all of the principal attorneys from Ruden. I’ve explained to them all of our firm’s practices and our system. They are comfortable with our system, and I think they believe it will allow them to continue practicing and meet their goals,” Greenspoon said. “The attorneys and senior shareholders remaining have been together for a very long time. They trust each other and remain very successful financially.”

Singerman has handled a case, the bankruptcy of Piccadilly Cafeterias, where a quick sale was arranged. Its appeals went all the way to the U.S. Supreme Court. Gordich acknowledged some similarities to Piccadilly, but said a law firm requires different scrutiny.

Singerman said the situation is “fragile.” He said the public and Ruden’s clients need to know that Ruden attorneys are being compensated and are comfortable with the planned transition to Greenspoon.